Friday, June 12, 2009

Inventories at U.S. businesses fell in April for an eighth straight month, the longest stretch since 2002, as companies cut back in the face of slowing sales.

The 1.1 percent decline in stockpiles followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Sales decreased 0.3 percent.

Companies are limiting production and spending to draw down stockpiles that piled up last year when demand plunged. A record inventory reduction in the first quarter was among the largest drags on the economy and may set the stage for stabilization and a return to growth later this year.

The last point is debatable especially with the GM and Chrysler bankruptcy, which are sure to lead to substantial new excess capacity in the system, and need for much less restocking and capex. Here is how the green shoot is planted in the same Bloomberg piece:

Government infrastructure projects, smaller stockpile reductions and stabilization in residential construction will help the economy start growing in the second half of this year.

Fiscal stimulus and business investment will lead the U.S. recovery, General Electric Co. Chief Executive Officer Jeffrey Immelt said June 9. The coming recovery will not be as strong as the one following the last severe recession in 1982, he said.

One could beg to differ with the CEO of CNBC's parent. A casual glance at the chart below indicates that in prior periods, the hit to inventories is in fact a multiple to that of sales underperformance. This is especially true since a vast portion of the leverage used in the past decade to finance expansion and inventory buildouts has now been lost for ever. If the chart below has any predictive power, it is only a matter of time before GDP expansion pundits, and those calling for an end to the recession as soon as September, are left scratching their heads how to invert their bullish thesis and not seem like book-talking propagandists.

Inventories at U.S. businesses fell in April for an eighth straight month, the longest stretch since 2002, as companies cut back in the face of slowing sales.

The 1.1 percent decline in stockpiles followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department said today in Washington. Sales decreased 0.3 percent.

Companies are limiting production and spending to draw down stockpiles that piled up last year when demand plunged. A record inventory reduction in the first quarter was among the largest drags on the economy and may set the stage for stabilization and a return to growth later this year.

The last point is debatable especially with the GM and Chrysler bankruptcy, which are sure to lead to substantial new excess capacity in the system, and need for much less restocking and capex. Here is how the green shoot is planted in the same Bloomberg piece:

Government infrastructure projects, smaller stockpile reductions and stabilization in residential construction will help the economy start growing in the second half of this year.

Fiscal stimulus and business investment will lead the U.S. recovery, General Electric Co. Chief Executive Officer Jeffrey Immelt said June 9. The coming recovery will not be as strong as the one following the last severe recession in 1982, he said.

One could beg to differ with the CEO of CNBC's parent. A casual glance at the chart below indicates that in prior periods, the hit to inventories is in fact a multiple to that of sales underperformance. This is especially true since a vast portion of the leverage used in the past decade to finance expansion and inventory buildouts has now been lost for ever. If the chart below has any predictive power, it is only a matter of time before GDP expansion pundits, and those calling for an end to the recession as soon as September, are left scratching their heads how to invert their bullish thesis and not seem like book-talking propagandists.